Indian economy on the eve of independence

The essentials

Before British rule India had a well-known handicraft industry in cotton and silk textiles, metal work and precious stone work, with markets across the world. Colonial policy aimed to turn India into a supplier of raw materials for British industry and a market for British finished goods. By independence in 1947 the economy was poor, stagnant and backward.

Key points

• Agriculture: the vast majority of people lived in villages and depended on farming, yet productivity was low. The zamindari system (with the Permanent Settlement in Bengal) let landlords extract rent without investing in land. Commercialisation of agriculture pushed some farmers to grow cash crops for British industry rather than food.
• Industry: traditional handicrafts declined (de-industrialisation) because of discriminatory tariffs and competition from cheap machine-made British goods. Modern industry grew slowly: cotton textile mills mainly in western India, jute mills mainly in Bengal, and the Tata Iron and Steel Company (TISCO) founded in 1907. Capital goods industry was almost absent.
• Foreign trade: India exported primary products (raw cotton, silk, jute, indigo, sugar) and imported finished goods. Britain held a near monopoly over India's trade. The export surplus was used to pay for British administrative and war expenses and other charges, a drain of wealth. The opening of the Suez Canal (1869) cut the cost of trade with Britain.
• Demography: the first census was in 1881; 1921 is called the year of the great divide, after which population grew steadily. Life expectancy, literacy and health were very poor and infant mortality was high.
• Occupational structure: most of the workforce was in agriculture, with small shares in manufacturing and services.
• Infrastructure: railways (introduced in 1850), roads, ports, posts and telegraph were developed mainly to serve colonial interests.

Exam tips

Learn the purpose behind each colonial measure. Questions often ask "why" a feature existed, for example why railways were built or why the export surplus did not benefit India.

Common mistakes

• Assuming the export surplus brought gold into India; it was used up in payments to Britain.